In November 2018, the Dutch government submitted an amended bill on management and supervision of legal entities. The amended bill brings substantial changes to the original bill which was submitted in June 2016.
The emphasis in 2016 was on achieving greater uniformity among the various Dutch entities having separate legal personality (i.e. NV, BV, foundation, association, cooperative and mutual insurance company).
To achieve this uniformity, pursuant to the 2016 bill those NV and BV rules which should in the opinion of the Dutch government apply to all Dutch legal entities (for example rules regarding conflict of interest and liability of board members but also provisions regarding the one-tier board structure) were to be centralised in a general part of Book 2 of the Dutch Civil Code (DCC) containing general legal principles applicable regardless legal form.
In the amended bill, this approach has been abandoned. Instead, the respective NV and BV rules are repeated for each type of legal entity with some variations where deemed appropriate. Therewith, the amended bill focuses more on maintaining flexibility and allows a wider leeway to structure legal entities’ governance. Also, the amended bill clarifies the duties and responsibilities of board members of Dutch legal entities. Some provisions were deemed too restrictive and were therefore removed from the bill.
Report (Nota naar aanleiding van verslag)
In the report regarding the amended bill (Nota naar aanleiding van het verslag), the Minister of Legal Protection provides a substantiated explanation on the changes compared to the original bill and he replies to questions and remarks from the House of Representatives in relation to the original bill.
When preparing the amended bill, the results following from the evaluation report of the Institute for Governance and Organizational Responsibility (Instituut voor Ondernemingsrecht) of October 2017 on the law on management and supervision, were taken into account.
The respective law on management and supervision came into force in 2013 and inter alia introduced new conflict of interest rules for Dutch BV’s in the DCC. From the evaluation report follows that the introduction of the new rules has not eliminated all uncertainties in relation to conflict of interest situations.
One of the recommendations of the researchers is to clarify if the conflict of interest rules as included in the DCC apply to the mandatory management board approval for proposed distributions by Dutch BV’s (Section 2:216 paragraph 2 DCC) in case management board members are also shareholders of the respective company.
The Minister has used the report regarding the amended bill to address this concern.
Section 2:216 paragraph 2 DCC
In short, Section 2:216 paragraph 2 DCC provides for a mandatory management board approval in case of a proposed distribution by a Dutch BV.
Under the DCC, a resolution to make a distribution does not have any effect as long as the BV’s management board has not approved the resolution to make the distribution.
The discretionary powers of the management board in this regard are limited. Section 2:216 paragraph 2 DCC provides for the following statutory criterion: the management board may only refuse to approve a proposed distribution if the management board knows or should reasonably be aware that the BV cannot continue to pay its due debts after the distribution.
In the report, the Minister discusses that in any case a conflict of interest situation can only arise if the interests of management board members are not aligned with the interests of the company. If that is the case depends on the specific circumstances of the case.
The Minister explains that the requirement to approve proposed distributions cannot be reconciled with the rules applicable to conflict of interest situations. He argues that when adopting a resolution to approve a distribution, the management board may only assess the proposed distribution on the basis of the statutory criterion of Section 2:216 paragraph 2 DCC (see above). The Minister indicates that any potential conflicting interests are not relevant in that respect and confirms that the conflict of interest rules do not apply to Section 2:216 paragraph 2 DCC.
After more than two years, the Dutch government submitted the amended bill on management and supervision of legal entities.
At this occasion, the Minister has taken the opportunity to clarify inter alia that the conflict of interest rules of the DCC do not apply to the mandatory management board approval of Section 2:216 paragraph 2 DCC which is required at the occasion of each proposed distribution by a Dutch BV to its shareholders.
For all Dutch BV’s where management board members are also shareholders of the respective company, this clarification is welcome news.